64644768-dmat-report
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A
Project Study Report
On
COMPREHENSIVE ANALYSIS OF DMAT A/C
Of
A Report submitted to Apex Institute of Management
&Science, Jaipur In partial fulfillment of full-time MBA Course .
Submitted to, Submitted by
Nikita Mam. Navin
Goyal
[M.B.A
IVth SEMESTER]1
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PrefaceIt is well evident that work experience is an indispensable part of every professional
course. Knowledge attains maturity and perfection through its application in practical
field. And professional study is incomplete without practical knowledge; no doubt,
theory provides the foundation stone for the guidance of practice, as practice examine
the element of truth lying in theory.
To achieve this purpose MBA participants are required to go for project involving
research based studies.
I had the privilege to do my project at JAIPUR CITY. I was assigned a project with
regard to Comprehensive Analysis of DMAT A/C of Reliance Money".
Entering the organization is like stepping into an entirely new world .At first
everything seemed strange and unheard of but as time passed I understood the
concept and working of the organization theyre by developed a professional
relationship
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ACKNOWLEDGEMENT
I take a great pleasure in acknowledging the APEX INSTITUTE OF MANAGEMENT
&SCIENCE, (JAIPUR) for giving me an opportunity to carry on my project with
Reliance Money Ltd. I also offer my thanks and gratitude to the Marketing and Sales
team of Reliance Money for accepting me as a trainee.
I express my warm regards and obligations to our project guide,
Mr. KSHITIZ for the help and direction given by him during my project work.
I owe my gratitude to Mr.VIDHU MATHUR for giving me all the possible co-
ordination to accomplish this project.
I sincerely thank the employee of Reliance Money for the cooperation they have
extended & valuable information they have provided for the completion of this project.
I have no words to express adequately my deep sense of gratitude to each and
everyone who have directly or indirectly cooperated and helped me to complete this
project successfully. Last but not least researcher likes to express her thanks to
friends and family members without whose valuable support this project have not been
a reality.
NAVIN GOYAL
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S.NO. CONTENTS P. No.
1 EXECUTIVE SUMMARY 5
2 OBJECTIVE OF STUDY 6
3 CHAPTER-1 INDUSTRY PROFILE 7-76
3.1 History of Stock Market in India 8-11
3.2 About SEBI ,NSDL,CDSL 12-27
3.3 Risk Involved in Stock Market 28-38
3.4 DMAT a/c 39-47
3.5 Indian brokerage industry 48-76
4 CHAPTER-4 COMPANY PROFILE 77-94
5 CHAPTER-5 RESEARCH METHOLOGY 95-102
6 CHAPTER-6 ANALYSIS AND INTERPRETATION 103-119
7 CHAPTER-7 SWOT ANALYSIS 120-122
8 CHAPTER-8 CONLUSION,FINDINGS AND SUGGESTIONS 123-124
9 RECOMMENDATIONS 125-126
10 CHAPTER-9 ANNEXURE 127-128
11 BIBLIOGRAPHY 129
EXECUTIVE SUMMARY
This project is based on a survey method; the study is based on
methodology of an investor in brokerage industry especially regarding DMAT account.
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To execute the study researcher preferred to study the role and activities of all the
participants in the share trading and different features of DMAT account. It is
prerequisite to the researcher to understand the whole market including all
components. The first phase of the project is executed by availing the knowledge of
the following in detail.
1. Role of SEBI
2. The Depository System
3. Role of BSE and NSE
4. Process of online trading
5. Activities of Reliance Money especially regarding DMAT account
Having the knowledge of the market and its operational features, the
researcher started exploring the product, contacted the prospective investor and got
the questionnaire filled regarding their need. For this purpose the researcher made a
questionnaire which contains both type of questions open ended and close ended.
The researcher used Stratified Random Sampling Technique to understand this
study. The researcher did convenient sampling. The research is Descriptive and
Diagnostic in nature as it dealt with describing the market and behavior of investor.
The researcher finds out some places near by some of brokerage houses where
prospective investors are used to come and get the questionnaire filled.
After getting all the data, researcher started analyzing the data and gave suggestions.
The researcher describes the behavior of an investor and tells the reasons behind his
various decisions. The researcher gives some suggestions to the company so that
company can attract new investor and retain the old one.
Objective of study: The objectives of my study are
1. Comprehensive analysis of DMAT A/c of Reliance Money
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2. To understand the trading system of Reliance Money.
3. To understand the stock market and its components.
4. To create awareness among market about Reliance Money
5. Help the company to attract new the investor.
6. Mapping up of potential customers for Reliance Money.
7. To understand what are the expectations and feedback of the
customers.
8. To find out suggestions and improvements to be implemented in
Reliance Money offerings and service.
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CHAPTER 1
INDUSTRY PROFILE
History of stock market in India
The working of stock exchanges in India started in 1875. BSE is the oldest stock
market in India. The history of Indian stock trading starts with 318 persons taking
membership in Native Share and Stock Brokers Association, which we now know by
the name Bombay Stock Exchange or BSE in short. In 1965, BSE got permanent
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recognition from the Government of India. National Stock Exchange comes second to
BSE in terms of popularity. BSE and NSE represent themselves as synonyms of
Indian stock market. The history of Indian stock market is almost the same as the
history of BSE.
The country's capital markets have passed through both good and bad periods. The
journey in the 20th century has not been an easy one. Till the decade of eighties,
there was no scale to measure the ups and downs in the Indian stock market. The
Stock Exchange, Mumbai (BSE) in 1986 came out with a stock index that
subsequently became the barometer of the Indian stock market.
SENSEX is not only scientifically designed but also based on globally accepted
construction and review methodology. First compiled in 1986, SENSEX is a basket of
30 constituent stocks representing a sample of large, liquid and representative
companies. The base year of SENSEX is 1978-79 and the base value is 100. The
index is widely reported in both domestic and international markets through print as
well as electronic media.
The Index was initially calculated based on the "Full Market Capitalization"
methodology but was shifted to the free-float methodology with effect from September
1, 2003. The "Free-float Market Capitalization" methodology of index construction is
regarded as an industry best practice globally.
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Due to its wide acceptance amongst the Indian investors; SENSEX is regarded to be
the pulse of the Indian stock market. As the oldest index in the country, it provides the
time series data over a fairly long period of time (From 1979 onwards). Small wonder,
the SENSEX has over the years become one of the most prominent brands in the
country.
SENSEX Calculation Methodology
SENSEX is calculated using "Free-float Market Capitalization" methodology. As per
this methodology, the level of index at any point of time reflects the Free-float market
value of 30 component stocks relative to a base period. The market capitalization of a
company is determined by multiplying price of its stock by the number of shares
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issued by company. This market capitalization is further multiplied by the free-float
factor to ssdetermine free-float market capitalization.
The base period of SENSEX is 1978-79 and the base value is 100 index points. This
is often indicated by the notation 1978-79=100. The calculation of SENSEX involves
dividing the Free-float market capitalization of 30 companies in the Index by a number
called the Index Divisor. The Divisor is the only link to the original base period value of
the SENSEX. It keeps the Index comparable over time and is the adjustment point for
all Index adjustments arising out of corporate actions, replacement of scripts etc.
During market hours, prices of the index scripts, at which latest trades are executed,
are used by the trading system to calculate SENSEX every 15 seconds and
disseminated in real time.
The National Stock Exchange of India Limited (NSE) is a Mumbai-based stock
exchange. It is the largest stock exchange in India in terms daily turnover and number
of trades, for both equities and derivative trading.
NSE is mutually-owned by a set of leading financial institutions, banks, insurance
companies and other financial intermediaries in India but its ownership and
management operate as separate entities. As of 2006, the NSE VSAT terminals, 2799
in total, cover more than 1500 cities across India.
In October 2007, the equity market capitalization of the companies listed on the NSE
was US$ 1.46 trillion, making it the second largest stock exchange in South Asia. NSE
is the third largest Stock Exchange in the world in terms of the number of trades inequities. It is the second fastest growing stock exchange in the world with a recorded
growth of 16.6%.
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The National Stock Exchange of India was promoted by leading financial institutions at
the behest of the Government of India, and was incorporated in November 1992 as a
tax-paying company. In April 1993, it was recognized as a stock exchange under the
Securities Contracts (Regulation) Act, 1956. NSE commenced operations in the
Wholesale Debt Market (WDM) segment in June 1994.
SECURITIES AND EXCHANGE BOARD OF INDIA
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Major part of the liberalization process was the repeal of the Capital Issues (control)
Act, 1947, in May 1992. With this, Governments control over issues of capital, pricing
of the issues, fixing of premium and rates of interest on debentures etc. ceased, and
the office which administered the Act was abolished: the market was allowed to
allocate resources to competing uses. However, to ensure effective regulation of the
market, SEBI Act, 1992 was enacted to establish SEBI with statutory powers for:-
Protecting the interests of investors in securities.
Promoting the development of the securities market, and
Regulating the securities market
Its regulatory jurisdiction extends over corporate in the issuance of capital and transfer
of securities, in addition to all intermediaries and person associated with securities
market. SEBI can specify the matters to be discloser and the standards of disclosure
required for the protection of investors in respect of issues; can issue directions to all
intermediaries and other person associated with the securities market in the interest of
investors or of orderly development of securities market and can conduct enquiries,
audits and inspections of all concern and adjudicate offences under the Act. In short, it
has been given necessary autonomy and authority to regulate and develop an orderly
securities market. All the intermediaries in the market, such as brokers and subbrokers, underwriters, merchant bankers, bankers to the issue, share transfer agents
and registrars to the issue, are now required to register with SEBI and are governed
by its regulations.
FUNCTIONS OF SEBI
SEBI has been obligated to protect the interests of the investors
securities and to promote and development of, and to regulate the securities
market by such measures as it thinks fit.
SEBI in particular has powers for:-
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(a) Regulating the business in stock exchanges and other securities markets
(b) Registering and regulating the working of stock brokers, sub brokers, share
transfer agents, bankers to an issue, trustees of trust deeds, registrars to an
issue, merchant bankers, underwriters, portfolio managers, investment
advisers and such other intermediaries who may be associated with securities
markets in any manner;
(c) Registering and regulating the working of depositories, participants,
custodians of securities, foreign institutional investors, credit rating agencies
and such other intermediaries as SEBI may, by notification, specify in this
behalf;
(d) Registering and regulating the working of venture capital funds and collective
investment schemes including mutual funds;
(e) Promoting and regulating self regulatory organizations;
(f) Prohibiting fraudulent and unfair trade practices relating to securities market;
(g) Promoting investors education and training of intermediaries of securities
markets;
(h) Prohibiting insider trading in securities;
(i) Regulating substantial acquisition of shares and take over of companies;
(j) Calling for information from, undertaking inspection, conducting inquiries andaudits of the stock exchanges, mutual funds and other persons associated
with the securities market and self regulatory organizations in the securities
market;
(k) Performing such functions and exercising according to securities contracts
(Regulation) Act, 1956, as may be delegated to it by the Central Government;
(l) Levying fees or other charges for carrying out the purpose of this section;
(m) Conducting research for the above purpose.
DEPOSITORY SYSTEM
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Depository system is concerned with conversion of securities from
physical to electronic form, settlement of trades in electronic segment, transfer of
ownership and custody of securities.
In the depository system, the ownership and transfer of securities place by means of
electronic book entries. This Rids the Capital market of the dangers and risks related
to handling of paper. Its transaction costs are also less as compared to that of physical
transactions. While investors will continue to exercise the option of holding securities
in the physical form, those preferring Rematerialisation of scripts are permitted to
withdraw from the depository by requesting the issue of physical certificate again.
Share transaction costs in the depository shall be lower than the cost of buying and
selling physical shares.
Depository system is not mandatory as of now; it is optional and is left on the investor
to decide whether he wants the securities to be DMATerialized. Holding and handling
of securities in electronic form eliminates problems that are normally associated with
physical certificates and it facilitates faster settlement cycle.
s
Depository System Business Partners:
NSDL carries out its activities through various functionaries called
business partners who include Depository Participants (DPs), Issuing companies and
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their Registrars and Share Transfer Agents, Clearing corporations/ Clearing Houses of
Stock Exchanges.
NSDL is electronically linked to each of these business partners via a satellite link
through Very Small Aperture Terminals (VSATs) or through Leased land lines. The
entire integrated system (including the electronic links and the software at NSDL and
each business partners end) is called the NEST (National Electronic Settlement &
Transfer) system. Depository Participant (DP): The investor obtains Depository
Services trough a depository participant of NSDL. A DP can be a bank, financial
institution, a custodian, a broker, or any entity eligible as per SEBI (Depositories and
Participants) Regulations, 1996. The SEBI regulations and NSDL bye laws also lay
down the criteria for any of these categories to become a DP.
Benefits of Depository System:
In the depository system, the ownership and transfer of securities takes place by
means of electronic book entries. At the outset, this system rids the capital market of
the dangers related to handling of paper. NSDL provides numerous direct and indirect
benefits, like:
Elimination of bad deliveries In the depository environment, once holdings of
an investor are DMATerialized, the question of bad delivery does not arise i.e.
they cannot be held under objection. In the physical environment, buyer was
required to take the risk of transfer and face uncertainty of the quality of assets
purchased. In a depository environment good money certainly begets good
quality of assets.
Elimination of all risks associated with physical certificates Dealing in physical
securities have associated security risks of theft of stocks, mutilation of
certificates, loss of certificates during movements through and from the
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registrars, thus exposing the investor to the cost of obtaining duplicate
certificates and advertisements. Etc. This problem does not arise in the
depository environment.
No stamp duty for transfer of any kind of securities in the depository. This
waiver extends to equity shares, debt instruments and units of mutual funds.
Immediate transfer and registration of securities In the depository environment, once
the securities are credited to the investors account on pay out, he becomes the legal
owner of the securities. There is no further need to send it to the companys registrar
for registration. Having purchased securities in the physical environment, the investor
has to send it to the companys registrar so that the change of ownership can be
registered. This process usually takes around three to four months and is rarely
completed within the statutory framework of two months thus exposing the investor to
opportunity cost of delay in transfer and to risk of loss in transit. To overcome this, the
normally accepted practice is to hold the securities in street names i.e. not to register
the change of ownership. However, if the investors miss a book closure the securities
are not good for delivery and the investor would also stand to loose his corporateentitlements
Faster settlement cycle The exclusive DMAT segments follow rolling
settlement cycle of T+2 i.e. the settlement of trades will be on the 2 nd working
day fro the trade day. This will enable faster turnover of stock and more liquidity
with the investor.
Faster disbursement of non cash corporate benefits like rights, bonus, etc.
NSDL provides for direct credit of non cash corporate entitlements to investors
accounts, thereby ensuring faster disbursement and avoiding risk of loss of
certificates in transit.
Reduction in brokerage by many brokers for trading in DMATerialized securities
Brokers provide this benefit to investors as dealing in DMATerialized
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securities reduces their back office cost of handling paper and also eliminates
the risk of being the introducing broker.
Reduction in handling of huge volumes of paper.
Periodic status reports to investors on their holding and transactions, leading to
better control.
Elimination of problems related to change of address of investor, transmission
etc. In case of change of address or transmission of DMAT shares, investors
are saved from undergoing the entire change procedure with each company or
registrar. Investors have to only inform their DP with all relevant documents and
the required changes are effected in the database of all the companies, where
the investor is a registered holder of securities.
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CENTRAL DEPOSITORY SECURITIES LIMITED
(CDSL)
A Depository facilitates holding of securities in the electronic form and enables
securities transactions to be processed by book entry by a Depository Participant
(DP), who as an agent of the depository, offers depository services to investors.
According to SEBI guidelines, financial institutions, banks, custodians, stockbrokers,
etc. are eligible to act as DPs. The investor who is known as beneficial owner (BO)
has to open a DMAT account through any DP for DMATerialisation of his holdings and
transferring securities.
The balances in the investors account recorded and maintained with CDSL can be
obtained through the DP. The DP is required to provide the investor, at regular
intervals, a statement of account which gives the details of the securities holdings and
transactions. The depository system has effectively eliminated paper-based
certificates which were prone to be fake, forged, counterfeit resulting in bad deliveries.
CDSL offers an efficient and instantaneous transfer of securities.
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CDSL was promoted by Bombay Stock Exchange Limited (BSE) jointly with leading
banks such as State Bank of India, Bank of India, Bank of Baroda, HDFC Bank,
Standard Chartered Bank, Union Bank of India and Centurion Bank
CDSL was set up with the objective of providing convenient, dependable and secure
depository services at affordable cost to all market participants. Some of the important
milestones of CDSL system are:
CDSL received the certificate of commencement of business from SEBI in
February, 1999. Honorable Union Finance Minister, Shri Yashwant Sinha
flagged off the operations of CDSL on July 15, 1999.
Settlement of trades in the DMAT mode through BOI Shareholding Limited, the
clearing house of BSE, started in July 1999.
All leading stock exchanges like the National Stock Exchange, Calcutta Stock
Exchange, Delhi Stock Exchange, The Stock Exchange, Ahmedabad, etc have
established connectivity with CDSL.
As at the end of Dec 2005, over 5000 issuers have admitted their securities
(equities, bonds, debentures and commercial papers), units of mutual funds,
certificate of deposits etc. into the CDSL system.
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Salient Features of CDSL
Convenience:
On-line DP Services: The DPs are directly connected to CDSL thereby providing
on-line and efficient depository service to investors (This will have to be re-phrased as
we are not giving branches anymore.)
Wide Spectrum of Securities Available for DMAT: Over 5500 issuers
have admitted their securities in CDSL consisting of Public (listed & unlisted) Limited
and Private Limited companies. These securities include equities, bonds, units of
mutual funds, Govt. securities, Commercial papers, Certificate of deposits; etc thus an
investor can hold almost all his securities in one account with CDSL.
Competitive Fees Structure: CDSL has kept its tariffs very competitive to
provide affordable Depository services to investors.
Internet Access:A DP, which registers itself with CDSL for Internet access, can
in turn provide DMAT account holders with access to their account on the Internet.
Dependability:20
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On-line Information to Users: CDSL's system is built on a centralised database
architecture and thus enables DPs to provide on-line depository services with the
latest status of the investor's account.
Convenient to DPs: The entire database of investors is stored centrally at CDSL. If
there is any system-related issues at DPs end, the investor is not affected, as the
entire data is available at CDSL.
Contingency Arrangements: CDSL has made provisions for contingency terminals,
which enables a DP to update transactions, in case of any system related problems at
the DP's office
Wide DP Network: CDSL has over 375 DPs spread across 124 cities/towns acrossthe country, offering convenience for an investor to select a DP based on his
locationAlthough India had a vibrant capital market which is more than a century old,
the paper-based settlement of trades caused substantial problems like bad delivery
and delayed transfer of title till recently. The enactment of Depositories Act in August
1996 paved the way for establishment of NSDL, the first depository in India. This
depository promoted by institutions of national stature responsible for economic
development of the country has since established a national infrastructure of
international standards that handles most of the securities held and settled in
DMATerialised form in the Indian capital market.
Using innovative and flexible technology systems, NSDL works to support the
investors and brokers in the capital market of the country. NSDL aims at ensuring the
safety and soundness of Indian marketplaces by developing settlement solutions that
increase efficiency, minimise risk and reduce costs. At NSDL, we play a quiet but
central role in developing products and services that will continue to nurture thegrowing needs of the financial services industry.
In the depository system, securities are held in depository accounts, which is more or
less similar to holding funds in bank accounts. Transfer of ownership of securities is
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done through simple account transfers. This method does away with all the risks and
hassles normally associated with paperwork. Consequently, the cost of transacting in
a depository environment is considerably lower as compared to transacting in
certificates.
Although India had a vibrant capital market which is more than a century old, the
paper-based settlement of trades caused substantial problems like bad delivery and
delayed transfer of title till recently. The enactment of Depositories Act in August 1996
paved the way for establishment of NSDL, the first depository in India. This depositorypromoted by institutions of national stature responsible for economic development of
the country has since established a national infrastructure of international standards
that handles most of the securities held and settled in DMATerialised form in the
Indian capital market.
Using innovative and flexible technology systems, NSDL works to support the
investors and brokers in the capital market of the country. NSDL aims at ensuring the
safety and soundness of Indian marketplaces by developing settlement solutions that
increase efficiency, minimise risk and reduce costs. At NSDL, we play a quiet but
central role in developing products and services that will continue to nurture the
growing needs of the financial services industry.
In the depository system, securities are held in depository accounts, which is more or
less similar to holding funds in bank accounts. Transfer of ownership of securities is
done through simple account transfers. This method does away with all the risks andhassles normally associated with paperwork. Consequently, the cost of transacting in
a depository environment is considerably lower as compared to transacting in
certificates.
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BENEFITS
Elimination of problems related to transmission of DMAT
shares - In case of DMATerialized holdings, the process of
transmission is more convenient as the securities the surviving joint
holder(s)/legal heirs/nominee has to correspond independently with each
company in which shares are held.
Elimination of problems related to selling securities on
behalf of a minor - A natural guardian is not required to take court
approval for selling DMAT securities transmission formalities for all
securities held in a DMAT account can be completed by submitting
documents to the DP whereas, in case of physical on behalf of a minor.
Elimination of problems related to change of address of
investor - In case of change of address, investors are saved from
undergoing the entire change procedure with each company or registrar.
Investors have to only inform their DP with all relevant documents and
the required changes are effected in the database of all the companies,
where the investor is a registered holder of securities
Elimination of bad deliveries: In the depository environment,
once holdings of an investor are DMATerialized, the question of bad
delivery does not arise i.e. they cannot be held "under objection". In the
physical environment, buyer was required to take the risk of transfer and
face uncertainty of the quality of assets purchased. In a depository
environment good money certainly begets good quality of assets.
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STOCK EXCHANGE
Stock Exchange organized market for buying and selling financial instruments known
as securities, which include stocks, bonds, options, and futures. Most stock
exchanges have specific locations where the trades are completed. For the stock of a
company to be traded at these exchanges, it must be listed, and to be listed, the
company must satisfy certain requirements. But not all stocks are bought and sold at a
specific site. Such stocks are referred to as unlisted. Many of these stocks are tradedover the counterthat is, by telephone or by computer.
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IMPORTANCE OF STOCK EXCHANGE
Stock exchanges perform important roles in national economies. Most importantly,
they encourage investment by providing places for buyers and sellers to trade
securities. This investment, in turn, enables corporations to obtain funds to expand
their businesses.
Corporations issue new securities in what is known as the primary market, usually with
the help of investment bankers. The investment bank acquires the initial issue of the
new securities from the corporation at a negotiated price and then makes thesecurities available for its clients and other investors in an initial public offering (IPO).
In this primary market, corporations receive the proceeds of security sales. After this
initial offering the securities are bought and sold in the secondary market. The
corporation is not usually involved in the trading of its stock in the secondary market.
Stock exchanges essentially function as secondary markets. By providing investors
the opportunity to trade financial instruments, the stock exchanges support the
performance of the primary markets. This arrangement makes it easier for
corporations to raise the funds that they need to build and expand their businesses.
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STOCK TRADING
Stocks are shares of ownership in companies. People who buy a companys stock
may receive dividends (a portion of any profits). Stockholders are entitled to any
capital gains that arise through their trading activitythat is, to any gain obtained
when the price at which the stock is sold is greater than the purchase price. But
stockholders also face risks. One risk is that the firm may experience losses and not
be able to continue the payment of dividends. Another risk involves capital losses
when the stockholder sells shares at a price below the purchase price.
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STOCK BROKERS
A stockbroker is an employee of a brokerage firm. The individual investor contacts his
or her stockbroker and provides the stockbroker with the details of the transaction the
investor wants to complete. Stockbrokers, however, are more than order takers or
sales representatives for their firms; they frequently provide advice to the investor.
They may have their own client list and call clients when they see transactions that will
fit the clients investment objectives. Stockbrokers almost always have certification
from, or registration with, a state government agency or an exchange or both. For this
reason they are sometimes referred to as registered representatives.
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Risk involved while investing in Stock Market
Risk is a complex, multidimensional concept that manifests itself in various ways. Risk
is omnipresent and includes stock market crashes, corporate bankruptcies and
currency devaluations, changes in sentiment, in inflation and interest rates, and even
major changes in the tax code.
Risk is generally defined as return volatility, or the degree of ups and downs of
returns. But there's more to risk than volatility. Risk and long-term reward are
generally related. Risk is the chance that your actual return will be less than you
expected.
People sometimes think that a good return can be achieved with little or no risk.
Unfortunately, that's impossible. To achieve your objectives, you need to assume
certain risks and avoid others.
Thoughtful investment selections that meet your goals and risk profile keep individual
stock and bond risks at an acceptable level.
However, other risks are inherent to investing you have no control over. Most of these
risks affect the market or the economy and require investors to adjust portfolios or ride
out the storm.
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Major types of such risks are:
Economic Risks
One of the most obvious risks of investing is that the economy can go bad. Followingthe market bust in 2000 and the terrorists attacks in 2001, the economy settled into a
sour spell.
A combination of factors saw the market indexes lose significant percentages. It has
taken years to return to levels close to pre-9/11 marks.
For young investors, the best strategy is often to just hunker down and ride out these
downturns. If you can increase your position in good solid companies, these troughsare often good times to do so.
Foreign stocks can be a bright spot when the domestic market is in the dumps if you
do your homework. Thanks to globalization, some U.S. companies earn a majority of
their profits overseas.
Older investors are in a tighter bind. If you are in or near retirement, a major downturn
in stocks can be devastating if you havent shifted significant assets to bonds or fixed
income securities.
Inflation
Inflation is the tax on everyone. It destroys value and creates recessions.
Although we believe inflation is under our control, the cure of higher interest rates may
at some point be as bad as the problem. Investors historically have retreated to hard
assets such as real estate and precious metals, especially gold, in times of inflation.Inflation hurts investors on fixed incomes the most, since it erodes the value of their
income stream. Stocks are the best protection against inflation since companies have
the ability to adjust prices to the rate of inflation. It is not a perfect solution, but that is
why even retired investors should maintain some of their assets in stocks.
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Market Value Risk
Market value risk refers to what happens when the market turns against or ignores
your investment. This happens when the market goes off chasing the next hot thing
and leaves many good, but unexciting companies behind. Some investors find this agood thing and view it as an opportunity to load up on great stocks at a time when the
market isnt bidding up the price.
On the other hand, it doesnt advance your cause to watch your investment flat-line
month after month while other parts of the market are going up.
The lesson is dont get caught with all you investments in one sector of the economy.
By spreading your investments across several sectors, you have a better chance ofparticipating in growth of some of your stocks at any one time.
How to evaluate a company before Investing
For stock investors that favor companies with good fundamentals, a "strong" balance
sheet is an important consideration for investing in a company's stock. The strength of
a company's balance sheet can be evaluated by three broad categories of investment-
quality measurements: working capital adequacy, asset performance and capitalstructure.
A company's capitalization describes the composition of a company's permanent or
long-term capital, which consists of a combination of debt and equity. A healthy
proportion of equity capital, as opposed to debt capital, in a company's capital
structure is an indication of financial fitness.
Optimal Debt-Equity Relationship
In financial terms, debt is a good example of the proverbial two-edged sword. The use
of leverage (debt) increases the amount of financial resources available to a company
for growth and expansion. The assumption is that management can earn more on
borrowed funds than it pays in interest expense and fees on these funds. However, as
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successful as this formula may seem, it does require that a company maintain a solid
record of complying with its various borrowing commitments.
A company considered too highly leveraged (too much debt versus equity) may find
its freedom of action restricted by its creditors and/or may have its profitability hurt as
a result of paying high interest costs. Of course, the worst-case scenario would be
having trouble meeting operating and debt liabilities during periods of adverse
economic conditions.
Unfortunately, there is no magic proportion of debt that a company can take on. The
debt-equity relationship varies according to industries involved, a company's line of
business and its stage of development. However, because investors are better off
putting their money into companies with strong balance sheets, common sense tells
us that these companies should have, generally speaking, lower debt and higher
equity levels.
Capital Ratios and Indicators
In general, analysts use three different ratios to assess the financial strength of a
company's capitalization structure. The first two, the so-called debt and debt/equity
ratios, are popular measurements; however, it's the capitalization ratio that delivers
the key insights to evaluating a companys capital position.
The debt ratio compares total liabilities to total assets. Obviously, more of the former
means less equity and, therefore, indicates a more leveraged position. The problem
with this measurement is that it is too broad in scope, which, as a consequence, gives
equal weight to operational and debt liabilities. The same criticism can be applied to
the debt/equity ratio, which compares total liabilities to total shareholders' equity.
Current and non-current operational liabilities, particularly the latter, represent
obligations that will be with the company forever. Also, unlike debt, there are no fixed
payments of principal or interest attached to operational liabilities.
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The capitalization ratio (total debt/total capitalization) compares the debt component of
a company's capital structure (the sum of obligations categorized as debt + total
shareholders' equity) to the equity component. Expressed as a percentage, a low
number is indicative of a healthy equity cushion, which is always more desirable than
a high percentage of debt.
BalanceSheetStrength
For stock investors, the balance sheet is an important consideration for investing in a
company's stock because it is a reflection of what the company owns and owes. The
strength of a company's balance sheet can be evaluated by three broad categories ofinvestment-quality measurements: working capital adequacy, asset performance and
capitalization structure.
FixedAssetTurnoverRatio
Property, plant and equipment (PP&E), or fixed assets, is another of the "big" numbers
in a company's balance sheet. In fact, it often represents the single largest component
of a company's total assets
A company's investment in fixed assets is dependent, to a large degree, on its line of
business. Some businesses are more capital intensive than others. Natural resource
and large capital equipment producers require a large amount of fixed-asset
investment. Service companies and computer software producers need a relatively
small amount of fixed assets. Mainstream manufacturers generally have around 30-
40% of their assets in PP&E. Accordingly, fixed asset turnover ratios will vary among
different industries.
The fixed asset turnover ratio is calculated as:
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This fixed asset turnover ratio indicator, looked at over time and compared to that of
competitors, gives the investor an idea of how effectively a company's management is
using this large and important asset. It is a rough measure of the productivity of a
company's fixed assets with respect to generating sales. The higher the number of
times PP&E turns over, the better. Obviously, investors should look for consistency or
increasing fixed asset turnover rates as positive balance sheet investment qualities.
Return on Assets Ratio
Return on assets (ROA) is considered to be a profitability ratio - it shows how much a
company is earning on its total assets. Nevertheless, it is worthwhile to view the ROA
ratio as an indicator of asset performance.
The ROA ratio (percentage) is calculated as:
The ROA ratio is expressed as a percentage return by comparing net income, the
bottom line of the statement of income, to average total assets. A high percentage
return implies well-managed assets. Here again, the ROA ratio is best employed as a
comparative analysis of a companys own historical performance and with companies
in a similar line of business.
Bullish and Bearish Market
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Origin of the term
One common myth is that the terms "bull market" and "bear market" are derived from
the way those animals attack a foe, because bears attack by swiping their paws
downward and bulls toss their horns upward.
This is a useful mnemonic, but is not the true origin of the terms.
Long ago, "bear skin jobbers" were known for selling bear skins that they did not own;
i.e., the bears had not yet been caught. This was the original source of the term
"bear."
This term eventually was used to describe short sellers, speculators who sold shares
that they did not own, bought after a price drop, and then delivered the shares.
Because bull and bear baiting were once popular sports, "bulls" was understood as
the opposite of "bears." I.e., the bulls were those people who bought in the
expectation that a stock price would rise, not fall.
A stock market bull is someone who has a very optimistic view of the market; theymay be stock-holders or maybe investors who aggressively buy and sell stocks
quickly.A bear investor, on the other hand, is pessimistic about the market .
What Drives Bear and Bull Markets?
The stock market is affected by many economic factors. High employment levels,
strong economy, and stable social and economic conditions generally build investor
confidence and encourage investors to put their money in the stock market. Often, thiscan bolster bull markets. Also, new technologies and companies that encourage
investors to put their money in stocks can create bull markets. For example, in the
1990s, the dot com craze encouraged many investors to put their money in stocks that
they felt would keep increasing. In some cases, a bullish market is simply self-
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perpetuating. Since the market is doing well, it only encourages investors to invest
more money or to start investing.
On the other hand, discouraging economic or social political changes in a society can
push the market down. Sudden instability or unemployment -- or even fears of
unemployment caused by wars and other problems -- can start to make investors
more conservative and therefore lead to bear markets. Of course, again this becomes
a self-perpetuating trend. As the economy slows down, companies begin downsizing.
Increased unemployment makes people far less willing to gamble on the stock market.
Sometimes, a panic caused by dire predictions about the market can also create
bearish conditions.
Investing During Bear and Bull Markets
New investors often assume that they need to avoid investing during bear markets,
and invest heavily during bull markets. This is not the case. Experienced investors
know that you need to be able to invest in any sort of market condition, provided that
you do so wisely. Each investor has a different strategy for dealing with a bull market
or bearish markets. Many investors try to take advantage of bull markets by buying
stocks as soon as the market gets bullish, and then starting to sell when prices seemto have reached their peak. The difficulty, of course, is that it is almost impossible to
tell when the trend is beginning and when it will peak. In general, investors can take
more chances with the market during a bullish phase. Since overall prices will rise, the
chances of making a profit are good.
In bearish market conditions, prices are falling and the possibility of loss is pretty
good. What is worse, it is not always possible to tell when bearish conditions will end.
Therefore, if you invest during such market conditions, you may have to suffer some
losses before bullish times return and you're able to realize a profit. For this reason,
many investors decide on short selling or fixed income securities and other more
conservative types of investment. Defensive stocks are another good option that
remains stable during bearish conditions. On the other hand, some investors see
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bearish market conditions as an ideal time to invest in more stocks. Since many
people are selling off their stocks -- including valuable blue-chip stocks -- at low prices,
it is possible to set up long-term investments that will prove valuable during bullish
times.
Our job in was to get such clients for the company, who not only wish to open a DMAT
account but also willing to trade regularly. As the company earns through brokerage
charged per transactions (i.e. when a client buys or sells shares) and to earn this
brokerage, they need such clients, who trade on regular basis.
This is been done by various methods like
Cold Calls Here I collect the details of people from corporate databases,
yellow pages, internet and references and try to fix an appointment with these
people by calling them.
Personal Network I also tried to make some clients based on my personal
network. I tried to contact my friends and family to give me prospective leads of
people who all are interested in share market.
Going on the field I also tried to get some clients by directly approaching to
big offices, multiplexes and some complexes.Apart from this our job in Reliance Money was to also look at such clients who were
not been trading in recent times. We tried and fixed an appointment with such clients
and tried to help them out if could be done with the help of company so that these
clients can trade with ease in future.
Important things one needs to keep in mind while opening a DMAT
account
Zero balance: Unlike a normal bank account, one doesnt need to deposit any
shares or cash for opening a DMAT account. Even after opening the account,
there is no need to hold any securities in that account. If and when you buy any
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share, this share will be shown in your account electronically. The account will
be adjusted to the extent of any sale/purchase of any securities as and when
the transaction takes place.
One ID: The DP will open the account in the system and give an accountnumber, which is also called BOID (Beneficiary Owner Identification number).
This account is enough to hold all kinds of securities like shares, debentures
and other debt instruments like bonds and G-secs. However, there is no
restriction on the number of DMAT accounts that can be held by a person.
One can open any number of DMAT accounts with different DPs. Even post
office instruments like Kisan Vikas Patra and National Savings Certificates can
be held in DMAT form. However, at present, the facility is available only in 35
nominated post offices in Mumbai.
Two documents: PAN has been made compulsory for all DMAT accounts with
effect from April 2006. Anyone opening a DMAT account needs to produce his
PAN card at the time of opening it. The PAN card also doubles as a proof of
identity document, which is mandatory.
The other important document is proof of address. Passport, driving license,
voters ID card, bank statement and electricity bills are among the various
documents accepted as identity proofs.
Three accounts: A DMAT account will be fully operational only if its
accompanied by two other accounts trading account and bank account.
While the former is optional, the latter is a pre-requisite as it is needed for
crediting any dividend warrants.
Trading account is necessary to buy/ sell securities in the market and can be
opened with a broker. If one does not intend to trade but only to convert
existing physical instruments into DMAT form, the trading account is not
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necessary. Since many banks these days have broking and DP arms, you can
open all three accounts at one place itself.
Four types of charges: There are four fees usually levied on a DMAT account:
conversion fee, annual maintenance fee, custodian fee and transaction fee. All
the charges vary from DP to DP.
Conversion fees: The DP charges a fee for converting shares from the
physical to the electronic form or vice-versa. This fee varies for both
DMAT and Remat requests. For DMAT, some DPs charge a flat fee per
request in addition to the variable fee per certificate, while others charge
only the variable fee.
Annual maintenance fees: This is generally charged in advance.
Custodian fee: This is charged monthly and depends on the number of
securities held in the account. Each security is identified by a unique
international securities identification number (ISIN). Custodian fee is
linked to this numbers and ranges between Rs 0.5 to Rs 1 per ISIN per
month. DPs will not charge custodian fee for ISIN on which the firms
have paid one-time custody charges to the depository.
Transaction fee: Transaction fee is charged for crediting/debiting
securities to and from the account on a monthly basis. While some DPs
charge a flat fee per transaction, others peg the fee to the transaction
value, subject to a minimum amount. For example, while SBI charges Rs
3 per transaction, ICICI Bank does not charge buy trades, but charges
0.04% of the transaction value in case of sell trades, subject to a
minimum of Rs 10.
The fee also differs on the kind of transaction (buying or selling). Some
DPs charge only for debiting the securities while others charge for both.
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The DPs also charge if your instruction to buy/sell fails or is rejected. In
addition, service tax is also charged by the DPs.
SEBI has removed account opening charges, transaction charges for credit of
securities, and custody charges vide circular .
DMAT
The term DMAT, in India, refers to a DMA Trailside account. For individual
Indian citizens to trade in listed stocks or debentures the Securities Exchange
Board of India (SEBI) requires the investor to maintain a DMAT account. In a
DMAT account shares and securities are held in electronic form instead of
taking actual possession of certificates. A DMAT Account is opened by theinvestor while registering with an investment broker (or sub broker). The DMAT
account number which is quoted for all transactions to enable electronic
settlements of trades to take place.
Access to the DMAT account requires an internet password and a transaction
password as well as initiating and confirming transfers or purchases of
securities. Purchases and sales of securities on the DMAT account areautomatically made once transactions are executed and complted.
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Advantages of DMAT
The DMAT account reduces brokerage charges, makes pledging/hypothecation
of shares easier, enables quick ownership of securities on settlement resulting
in increased liquidity, avoids confusion in the ownership title of securities, and
provides easy receipt of public issue allotments.
It also helps you avoid bad deliveries caused by signature mismatch, postal
delays and loss of certificates in transit. Further, it eliminates risks associatedwith forgery, counterfeiting and loss due to fire, theft or mutilation. DMAT
account holders can also avoid stamp duty (as against 0.5 per cent payable on
physical shares), avoid filling up of transfer deeds, and obtain quick receipt of
such benefits as stock splits and bonuses.
Indian Market Scenario
Indian capital market has seen unprecedented boom in its activity in the last 15
years in terms of number of stock exchanges, listed companies, trade volumes,
market intermediaries, investor population, etc. However, this surge in activity
has brought with it numerous problems that threaten the very survival of the
capital markets in the long run, most of which are due to the large volume of
paper work involved and paper based trading, clearing and settlement. Until the
late eighties, the common man kept away from capital market and thus the
quantum of funds mobilized through the market was meager. A major problem,
however, continued to plague the market. The Indian markets were drowned in
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shares in the form of paper and hence it was problematic to handle them. Fake
and stolen shares, fake signatures and signature mismatch, duplication and
mutilation of shares, transfer problems, etc. The investors were scared and
were under compensated for the risk borne by them. The century old system of
trading and settlement requires handling of huge volumes of paper work. Thishas made the investors, both retail and institutional, wary of entering the capital
market.
However, lack of modernization become a hindrance to growth and resulted in
creation of cumbersome procedures and paper work. However, the real growth
and change occurred from mid-eighties in the wake of liberalization initiatives of
the Government. The reforms in the financial sector were envisaged in the
banking sector, capital market, securities market regulation, mutual funds,
foreign investments and Government control. These institutions and stock
exchanges experienced that the certificates are the main cause of investors`
disputes and arbitration cases. Since the paper work was not matching the
rapid growth so there was a need for a better system to ensure removal of
these impediments. Government of India decided to set up a fully automated
and high technology based model exchange that could offer screen-based
trading and depositories as the ultimate answer to all such reforms andeliminate various bottlenecks in the capital market, particularly, the clearing and
settlement system in stock exchanges.[1] A depository in very simple terms is a
pool of pre-verified shares held in electronic mode which offers settlement of
transactions in an efficient and effective way.
Object Of DMAT System
India has adopted this system in which book entry is done electronically. It is
the system where no paper is involved. Physical form is extinguished and
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shares or securities are held in electronic mode. Before the introduction of the
depository system by the Depository Act, 1996, the process of sale, purchase
and transfer of shares was a huge problem and the safety perspective was
zero.
DMAT Benefits
The benefits are enumerated as follows:
Its a safe and convenient way to hold securities
Immediate transfer of securities is there
There is no stamp duty on transfer of securities
Elimination of risks associated with physical certificates such as bad
delivery, fake securities, delays, thefts etc
There is a major reduction in paperwork involved in transfer of
securities,reduction in transaction cost etc
.No odd lot problem, even one share can be sold thus there is an
advantage
Change in address recorded with DP gets registered with all
companies in which investor holds securities electronically eliminating
the need to correspond with each of them separately
Transmission of securities is done by DP eliminating correspondence
with companies.
Automatic credit into DMAT account of shares, arising out of
bonus/split/consolidation/merger etc.
Holding investments in equity and debt instruments in a single
account.
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Benefit to the Company
The depository system helps in reducing the cost of new issues due to less
printing and distribution cost. It increases the efficiency of the registrars and
transfer agents and the Secretarial Department of the company. It provides
better facilities for communication and timely services with shareholders,
investor etc.
Benefit to the Investor The depository system reduces risks involved in holding
physical certificated, e.g., loss, theft, mutilation, forgery, etc.It ensures transfersettlements and reduces delay in registration of shares. It ensures faster
communication to investors. It helps avoid bad delivery problem due to
signature differences, etc.It ensures faster payment on sale of shares. No
stamp duty is paid on transfer of shares. It provides more acceptability and
liquidity of securities.
Benefit to Brokers
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The depository system reduces risk of delayed settlement. It ensures greater
profit due to increase in volume of trading. It eliminates chances of forgery
bad delivery. It increases overall of trading and profitability.It increases
confidence in investors.
DMAT conversion
Converting physical holding into electronic holding (DMATerialising securities)
In order to DMATerialise physical securities one has to fill in a DRF (DMAT
Request Form) which is available with the DP and submit the same along with
physical certificates one wishes to DMATerialise. Separate DRF has to be filled
for each ISIN Number. The complete process of DMATerialisation is outlinedbelow: Surrender certificates for DMATerialisation to your depository
participant. Depository participant intimates Depository of the request through
the system. Depository participant submits the certificates to the registrar of
the Issuer Company. Registrar confirms the DMATerialisation request from
depository. After DMATerialising the certificates, Registrar updates accounts
and informs depository of the completion of DMATerialisation. Depository
updates its accounts and informs the depository participant. Depository
participant updates the DMAT account of the investor.
DMAT Options
Banks score over others Around 200 depository participants (DPs) offer the
DMAT account facility. A comparison of the fees charged by different DPs is
detailed below. But there are three distinct advantages of having a DMAT
account with a bank quick processing, accessibility and online transaction.
Generally, banks credit your DMAT account with shares in case of purchase, or
credit your savings accounts with the proceeds of a sale on the third day.
Banks are also advantageous because of the number of branches they have.
Some banks give the option of opening a DMAT account in any branch, while
others restrict themselves to a select set of branches. Some private banks also
provide online access to the DMAT account. So, you can check on your
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holdings, transactions and status of requests through the net banking facility. A
broker who acts as a DP may not be able to provide these services.
Fees Involved
There are four major charges usually levied on a DMAT account: Account
opening fee, annual maintenance fee, custodian fee and transaction fee. All the
charges vary from DP to DP. Account-opening fee Depending on the DP, there
may or may not be an opening account fee. Private banks, such as ICICI Bank,
HDFC Bank and UTI Bank, do not have one. However, players such as Karvy
Consultants and the State Bank of India do so. But most players levy this when
you re-open a DMAT account, though the Stock Holding Corporation offers a
lifetime account opening fee, which allows you to hold on to your DMAT
account over a long period. This fee is refundable. Annual maintenance fee
This is also known as folio maintenance charges, and is generally levied in
advance.
Custodian fee: This fee is charged monthly and depends on the number of
securities (international securities identification numbers ISIN) held in the
account. It generally ranges between Rs 0.5 to Rs 1 per ISIN per month. DPs
will not charge custody fee for ISIN on which the companies have paid one-time
custody charges to the depository. Transaction fee: The transaction fee is
charged for crediting/debiting securities to and from the account on a monthly
basis. While some DPs, such as SBI, charge a flat fee per transaction, HDFC
Bank and ICICI Bank peg the fee to the transaction value, subject to a minimum
amount. The fee also differs based on the kind of transaction (buying or
selling). Some DPs charge only for debiting the securities while others charge
for both. The DPs also charge if your instruction to buy/sell fails or is rejected.
In addition, service tax is also charged by the DPs. In addition to the other
fees , the DP also charges a fee for converting the shares from the physical to
the electronic form or vice-versa. This fee varies for both DMAT and remat
requests. For DMAT, some DPs charge a flat fee per request in addition to thevariable fee per certificate, while others charge only the variable fee. For
instance, Stock Holding Corporation charges Rs 25 as the request fee and Rs 3
per certificate as the variable fee. However, SBI charges only the variable fee,
which is Rs 3 per certificate. Remat requests also have charges akin to that of
DMAT. However, variable charges for remat are generally higher than DMAT.
Some of the additional features (usually offered by banks) are as follows.Some
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DPs offer a frequent trader account, where they charge frequent traders at
lower rates than the standard charges.DMAT account holders are generally
required to pay the DP an advance fee for each account which will be adjusted
against the various service charges. The account holder needs to raise the
balance when it falls below a certain amount prescribed by the DP. However, ifyou also hold a savings account with the DP you can provide a debit
authorisation to the DP for paying this charge.Finally, once you choose your
DP, it will be prudent to keep all your accounts with that DP, so that tracking
your capital gains liability is easier. This is because, for calculating capital gains
tax, the period of holding will be determined by the DP and different DPs follow
different methods. For instance, ICICI Bank uses the first in first out (FIFO)
method to compute the period of holding. The proof of the cost of acquisition
will be the contract note. The computation of capital gains is done account-
wise.
Opening an account
Steps involved in opening a DMAT account First an investor has to approach a
DP and fill up an account opening form. The account opening form must be
supported by copies of any one of the approved documents to serve as proof of
identity (POI) and proof of address (POA) as specified by SEBI. Besides,
production of PAN card in original at the time of opening of account has beenmade mandatory effective from April 1, 2006.
All applicants should carry original documents for verification by an authorized
official of the depository participant, under his signature. Further, the investor
has to sign an agreement with DP in a depository prescribed standard format,
which details rights and duties of investor and DP. DP should provide the
investor with a copy of the agreement and schedule of charges for their future
reference. The DP will open the account in the system and give an account
number, which is also called BO ID (Beneficiary Owner Identification number).
The DP may revise the charges by giving 30 days notice in advance. SEBI hasrationalised the cost structure for DMATerialisation by removing account
opening charges, transaction charges for credit of securities, and custody
charges vide circular dated January 28, 2005. Further, SEBI has vide circular
dated November 9, 2005 advised that with effect from January 9, 2006, no
charges shall be levied by a depository on DP and consequently, by a DP on a
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account to another branch of the same DP or to another DP of the same
depository or another depository, provided the BO Account/s at transferee DP
and at transferor DP are one and the same, i.e. identical in all respects. In case
the BO Account at transferor DP is a joint account, the BO Account at
transferee DP should also be a joint account in the same sequence ofownership.
Disadvantages of DMAT
The disadvantages of DMATerialization of securities can be summarised as
follows:
Trading in securities may become uncontrolled in case of DMATerialized
securities.
It is incumbent upon the capital market regulator to keep a close watch
on the trading in DMATerialized securities and see to it that trading does
not act as a detriment to investors.
The role of key market players in case of DMATerialized securities, such
as stock-brokers, needs to be supervised as they have the capability of
manipulating the market.
Multiple regulatory frameworks have to be confirmed to, including the
Depositories Act, Regulations and the various By-Laws of various
depositories.
Additionally, agreements are entered at various levels in the process of
DMATerialization. These may cause anxiety to the investor desirous of
simplicity in terms of transactions in DMATerialized securities.
However, the advantages of DMATerialization outweigh its disadvantages and
the changes ushered in by SEBI and the Central Government in terms of
compulsory DMATerialization of securities is important for developing the
securities market to a degree of advancement. Freely traded securities are an
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essential component of such an advanced market and DMATerialization
addresses such issues and is a step towards the advancement of the market.
Transfer of Shares between DPs
To transfer shares, we need to fill the Depository Instruction Slip Book (DIS).
Firstly we need to check, whether both DMAT account's Depository Participant
is same or not(CDSL or NSDL) If both of them are different, then we need an
INTER Depository Slip (Inter DIS). If they are same, then we need INTRA
Depository Slip (Intra DIS).
For example: If we have one DMAT account with CDSL and other DMAT
account with NSDL, then we need an Inter DIS.
Generally, brokers issue Intra DIS, so do check with broker.
Once we identify the correct DIS, fill the relevant information like
scrip name
INE number
quantity in words and figures and
submit that DIS for the transfer to the broker with signatures. The transferor
broker shall accept that DIS in duplicate and acknowledge receipt of DIS on
duplicate copy.
Do try to submit that DIS when market is on. Accordingly, date of submission of
DIS and date of execution of DIS can be same or a difference of one day is
also acceptable.
For transfer, you shall also pay the broker some charges.
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A COMPARISON OF INVESTMENT IN SECURITIES IN PHYSICAL AND
DEPOSITORY MODES
IN PHYSICAL FORM IN DMAT FORM
Space required for storage and safety No space required
Exclusive manpower to be allocated This function can be clubbed with
functions. No Exclusive manpower is
required
Insurance is required No insurance required
Laborious inventory verification during
internal stock taking and audits
Periodic statement of holding is made
available by the Dps Easy verification
of audits
Risk of theft /Forgery No risk of Theft/ Forgery
Pledging of shares is cumbersome Pledging is safe and easy
Receipt of Corporate benefits need
monitoring and risks of loss in transit
not ruled out
Faster and hassle free receipt of
corporate benefits
Inconvenience in portfolio shuffling and
transactions within the group
Convenient portfolio shuffling and
adjustment within the group since
delivery is through a single
instrument,registration &instantaneous.
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Indian
Brokerage
industry
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The Indian broking industry is one of the oldest trading industries that has beenaround even before the establishment of the BSE in 1875. Despite passing through a
number of changes in the post liberalisation period, the industry has found its way
towards sustainable growth.
The equity broking industry in India is growing in terms of scope and scale of
business. With the Indian securities markets experiencing rapid growth and with
financial integration gaining speed, the role of intermediation is further going to
strengthen. However in the long term, quality and maturity of service will determine thesuccess and sustainability of the firms in this segment. Key factors driving growth and
success in the broking industry would be distribution networks, diversification of
services, expertise and research, transparency and disclosure, compliance and
market integrity.
Both the number of broking firms and the scope of the business have increased
significantly in the last one and a half decades. A majority of the members now have
memberships in more than one stock exchange, enabling them to expand the
business into a number of products. A large number of broking firms today have
memberships across equities, equity derivatives and commodities futures in domestic
and international stock exchanges. Increase in the scale of business led top notch
broking firms enhances their enterprise value.
The equity broking industry showed exceptional growth in last few years. The surge in
business in termsof new customer accounts and value of share trading was evident
across the entire spectrum ofthe equity broking industry. Major equity broking houses
reported impressive gains in openingnew customer accounts. The range of services
provided by the broking firms transformed from being simple trading services to
number of financial services in the realm of primary and secondary markets as also
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fund management and wealth management services. As it can be seen from the Table
1. below IndiaBulls and Reliance Money is leading the race of acquiring new accounts.
table 1. number of accounts added in 2010
Source: Research report, Indias leading broking houses, 2008. By Dun &
Bradstreet, India
Equity broking firms which reported significant rise in their trading terminals during the
first 10 months of 2007 included Motilal Oswal (3,744), Reliance Money (905), Master
Capital (505), Inventure (529), Adroit Financial (438), Indiabulls (287), Emkay (281),
Techno Shares (217), Sushil Finance (294), Jhaveri Securities (169), KRC (147), SKI
Capital (155) and Mansukh (125).
Firms with significant increase in the branches/offices during the first 10 months of
CY07 included Bonanza (335), Arcadia (285), Master Capital (202), Khandwala
Integrated (195), Reliance Money (107), Anand Rathi (93), Microsec Capital (90),
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Kunvarji Finstock (77), SKI Capital (55), Indiabulls (45) and Networth Stock Broking
(34).
Major developments in equity brokerage industry in India
i) Corporate memberships
There is a growing surge of corporate memberships (92% in NSE and 75% in BSE),
and the scope of functioning of the brokerage firms has transformed from that of being
a family run business to that of professional organised function that lays greater
emphasis on observance of market principles and best practices. With proliferation of
new markets and products, corporate nature of the memberships is enabling broking
firms to expand the realm of their operations into other exchanges as also other
product offerings. Memberships range from cash market to derivatives to commodities
and a few broking firms are making forays into obtaining memberships in exchanges
outside the country subject to their availability and eligibility.
ii) Wider product offerings
The product offerings of brokerage firms today go much beyond the traditional trading
of equities. A typical brokerage firm today offers trading in equities and derivatives,
most probably commodities futures, exchange traded funds, distributes mutual funds
and insurance and also offers personal loans for housing, consumptions and other
related loans, offers portfolio management services, and some even go to the extent
of creating niche services such as a brokerage firm offering art advisory services. In
the background of growing opportunities for Investors to invest in India as also abroad,
the range of products and services will widen further. In the offerings will be interesting
opportunities that might arise in the exchange enabled corporate bond trading, soon
after its commencement and futures trading that might be introduced in the near future
in the areas of interest rates and Indian currency.
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Also there has been a growing trend of separating the services offered into various
subsidiaries so that each subsidiary can concentrate better on a particular service. For
E.g. India Infoline ahs segregated its services into various subsidiaries:
iii) Greater reliance on research
Client advising in India has graduated from personal insights, market tips to becoming
extensively research oriented and governed by fundamentals and technical factors.
Vast progress has been made in developing company research and refining methods
in technical and fundamental analysis. The research and advice are made online
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giving ready and real time access to market research for investors and clients, thus
making research important brand equity for the brokerage firms.
iv) Accessing equity capital markets
Access to reliable financial resources has been one of the major constraints faced by
the equity brokerage industry in India since long. Since the banking system is not fully
integrated with the securities markets, brokerage firms face limitations in raising
financial resources for business and expansion. With buoyancy of the stock markets
and the rising prospects of several well organized broking firms, important opportunity
to access capital markets for resource mobilization has become available. The recent
past witnessed several leading brokerage firms accessing capital markets for financial
resources with success.
v) Foreign collaborations and joint ventures
The way the brokerage industry is run and the manner in which several of them
pursued growth and development attracted foreign financial institutions and
investment banks to buy stakes in domestic brokerage firms, paving the way for
stronger brokerage entities and possible scope for consolidation in the future. Foreign
firms picked up stake in some of the leading brokerage firms, which might lead to
creating of greater interest in investing in brokerage firms by entities in India andabroad.
vi) Specialised services/niche broking
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While supermarkets approach are adopted in general by broking firms, there are some
which are creating niche services that attract a particular client group such as day
traders, arbitrage trading, investing in small cap stocks etc, and providing complete
range of research and other support to back up this function.
vii) Online broking
Several brokers are extending benefits of online trading through creation of separate
windows. Some others have dedicated online broking portals. Emergence of online
broking enabled reduction in transaction costs and costs of trading. Keen competition
has emerged in online broking services, with some of these offering trading services at
the cost of a few basis points or costs which are fixed in nature irrespective of the
volume of trading conducted. A wide range of incentives are being created and offered
by online brokerage firms to attract larger number of clients.
viii) Compliance oriented
With stringent regulatory norms in operation, broking industry is giving greater
emphasis on regulatory compliance and observance of market principles and codes of
conduct. Many brokerage firms are investing time, money and resources to create
efficient and effective compliance and reporting systems that will help them in avoiding
costly mistakes and possible market abuses. Brokerage firms now have a compliance
officer who is responsible for all compliance related aspects and for interacting with
clients and other stake holders on aspects of regulation and compliance.
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ix) Focus on training and skill sets
Brokerage firms are giving importance and significance to aspects such as training on
skill sets that could prove to be beneficial in the long run. With the nature of markets
and products becoming more complex, it becomes imperative for the broking firms to
keep their staff continuously updated with latest development in practices and
procedures. Moreover, it is mandated for certain types of dealers/brokers to seek
specific certification and examinations that will make them eligible to carry business or
trade. Greater emphasis on aspects such as research and analysis is giving scope for
in-depth training and skills sets on topics such as trading programs, valuations,
economic and financial forecasting and company research.
x) From owners to traders
A fundamental change that has taken place in the equity brokerage industry, which is
a global trend as well, is the transformation of broking from owners of the stockexchange to traders of the stock market. Demutualization and corporatisation of stock
exchanges bifurcated the ownership and trading rights with brokers vested only with
the later and ownership being widely distributed. Demutualization is providing
balanced welfare gains to both the stock exchanges and the members with the former
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being able to run as corporations and the latter being able to avoid conflict of interests
that sometimes came as a major deterrent for the long term growth of the industry.
Opportunities
Growing Equity Culture
Theres a growing tendency amoung the people in the country to invest their
savings in the equity market instead of other less riskier areas like government
bonds, post office deposit etc.. The main reasons behind this transformation
could be many like increase in awareness amoung peole about the equity
market increase of coverage in newspapers and news channels, increase in
overall education in the nation, increase in risk taking appetite for people etc.
Dynamic markets
The dynamic equity market has given the brokerage to increase the number of
their revenue streams. Now along with revenue through equity trading the other
source of revenue generation streans are derivatives trading, arbitrage, margin
financing, e-broking etc. These are now major revenues streams for many
players in this market.
Institutional investing: domestic/foreign
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One of the very biggest opportunities of Indian broekrage firms comes with the
increase investment by institutional investors both domestic and foreign. There
number has been increased heavily in last few years.
Expanding product range
Because of requirement of giving better services to their clients new product
and services are been generated. Now every brokearge firm is providing whole
lot of services to their clients like equity trading, portfolio management services,
equity research, commodities research, mortgages services, online trading
services, SMS tips, insurance plans, wealth management services, newsletters
etc.
Key Drivers for Growth of the Industry
The major growth drivers for brokerage revenue and trading volume are:
Continuous fall in brokerage fees due to increase in volumes and also
due to increase in competition has been a major factor to attract more and
more towards investment in stock market,
Adoption of technology lik